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China's Economic Rise: History, Trends, Challenges, Implications for the United States
Figure 2. Comparison of Chinese and Japanese Per Capita GDP: 1950-1978
($ billions, PPP basis)
14,000
12,000
10,000
8,000
-China
6,000
-Japan
4,000
2,000
0
o N 1:: l 00 0 N 1:: l 00 0 N 1:: l 00
Ln Ln Ln Ln LOn I' nl D l r_1 r_1 r_1 r_1 r_1
Source: Angus Maddison, Historical, Statistics of the World Economy: I -2008 AD.
The Chinese government in 1978 (shortly after the death of Chairman Mao in 1976) decided to
break with its Soviet-style economic policies by gradually reforming the economy according to
free market principles and opening up trade and investment with the West, in the hope that this
would significantly increase economic growth and raise living standards. As Chinese leader Deng
Xiaoping, the architect of China's economic reforms, put it: "Black cat, white cat, what does it
matter what color the cat is as long as it catches mice?"9
The Introduction of Economic Reforms
Beginning in 1979, China launched several economic reforms. The central government initiated
price and ownership incentives for farmers, which enabled them to sell a portion of their crops on
the free market. In addition, the government established four special economic zones along the
coast for the purpose of attracting foreign investment, boosting exports, and importing high
technology products into China. Additional reforms, which followed in stages, sought to
decentralize economic policymaking in several sectors, especially trade. Economic control of
various enterprises was given to provincial and local governments, which were generally allowed
to operate and compete on free market principles, rather than under the direction and guidance of
state planning. In addition, citizens were encouraged to start their own businesses. Additional
coastal regions and cities were designated as open cities and development zones, which allowed
them to experiment with free market reforms and to offer tax and trade incentives to attract
foreign investment. In addition, state price controls on a wide range of products were gradually
eliminated. Trade liberalization was also a major key to China's economic success. Removing
trade barriers encouraged greater competition and attracted FDI inflows. China's gradual
implementation of economic reforms sought to identify which policies produced favorable
economic outcomes (and which did not) so that they could be implemented in other parts of the
9 This reference appears to have meant that it did not matter whether an economic policy was considered to be
"capitalist" or "socialist," what really mattered was whether that policy would boost the economy and living standards.Congressional Research Service
4
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Morrison, Wayne M. China's Economic Rise: History, Trends, Challenges, and Implications for the United States, report, August 6, 2017; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc1020808/m1/8/: accessed July 17, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.